R.A.K. Ceramics P.J.S.C's (ADX:RAKCEC) Dividend Will Be AED0.10

The board of R.A.K. Ceramics P.J.S.C. (ADX:RAKCEC) has announced that it will pay a dividend of AED0.10 per share on the 1st of January. This means the annual payment is 7.8% of the current stock price, which is above the average for the industry.

See our latest analysis for R.A.K. Ceramics P.J.S.C

R.A.K. Ceramics P.J.S.C's Future Dividend Projections Appear Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, the company was paying out 128% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 50%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Looking forward, earnings per share is forecast to rise by 27.3% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 72% which brings it into quite a comfortable range.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of AED0.112 in 2015 to the most recent total annual payment of AED0.20. This implies that the company grew its distributions at a yearly rate of about 6.0% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

R.A.K. Ceramics P.J.S.C May Have Challenges Growing The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. R.A.K. Ceramics P.J.S.C has seen EPS rising for the last five years, at 6.1% per annum. While EPS is growing at a decent rate, but future growth could be limited by the amount of earnings being paid out to shareholders.

Our Thoughts On R.A.K. Ceramics P.J.S.C's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about R.A.K. Ceramics P.J.S.C's payments, as there could be some issues with sustaining them into the future. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for R.A.K. Ceramics P.J.S.C that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.